AIG sells Hartford Steam Boiler for $742 million

CHARLOTTE, N.C._American International Group Inc. said Monday that it will sell its Hartford Steam Boiler unit to German reinsurer Munich Re for $742 million.

The purchase price is considered well below HSB Group Inc.'s value _ estimated at between $1 billion and $2 billion by the Financial Times _ as the embattled New York-based insurer AIG is forced to sell off units to pay back a U.S. government bailout loan.

"These are financial conditions that we wouldn't have dreamed of a short time ago," Munich Re's chief financial officer, Joerg Schneider, told reporters in a conference call.

An AIG spokesman could not be reached for immediate comment, but in a statement, HSB Group President and Chief Executive Officer Douglas Elliot said the deal will "offer our clients the reassurance that they're looking for in today's uncertain market environment."

Munich Re said it planned to complete the purchase in the first quarter of 2009, and will assume $76 million of HSB's outstanding capital securities.

HSB, based in Hartford, Conn., is a specialty unit focused on engineering insurance and inspection. It is a subsidiary of The Hartford Steam Boiler Inspection and Insurance Company.

Peter Roeder, a Munich Re board member responsible for U.S. business, said HSB was an attractive, low-risk investment because of its specialized business.

"The acquisition of HSB is a perfect fit for our U.S. strategy," Roeder said. "It is another step in developing our position in high return specialized niche segments."

Reinsurers sell backup coverage to other insurers, spreading risk so the system can handle large or widespread losses. Munich Re also operates Ergo, one of Germany's biggest insurers, and Munich Reinsurance America Inc.

HSB had been rumored to be next on the selling block, as AIG sheds or sells some interest in units globally as a means to pay back the U.S. government's $150 billion rescue package announced last month to help it pull through the credit crisis.

That rescue package came just two months after AIG was extended an $85 billion loan from the Federal Reserve. The original loan was replaced by the $150 billion package as it became apparent the insurer needed more funds.

AIG said in October it would sell off a number of business units to repay the original $85 billion government loan.

The company has not specifically disclosed the assets it would sell or the expected prices from the sales. However, AIG has said it plans to retain its U.S. property and casualty and foreign general insurance businesses, and plans to retain an ownership interest in its foreign life insurance operations.

As of Dec. 5, AIG had already sold interests in three businesses, and two weeks ago was said to be in the final stages of selling its U.S. personal lines business and one other operation.

Shares of AIG fell 7 cents to $1.53 in premarket trading after closing Friday at $1.60.

Shares of Munich Re were down 0.2 percent at 106.16 euros in Frankfurt trading Monday.

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Associated Press Writer Patrick McGroarty contributed to this report from Berlin.